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hi i need help with this questions with the last 3 questions Adams, Inc., acquires Clay Corporation on January 1, 2020, in exchange for $732,300 cash. Immediately after the acquisition, the two...

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hi i need help with this questions with the last 3 questions

 

Adams, Inc., acquires Clay Corporation on January 1, 2020, in exchange for $732,300 cash. Immediately after the acquisition, the two companies have the following account balances. Clay’s equipment (with a five-year remaining life) is actually worth $604,900. Credit balances are indicated by parentheses.

 

  Adams   Clay  
Current assets $ 326,000   $ 290,000  
Investment in Clay   732,300     0  
Equipment   781,900     526,000  
Liabilities   (280,000 )   (170,000 )
Common stock   (350,000 )   (150,000 )
Retained earnings, 1/1/20   (1,210,200 )   (496,000 )
 

 

In 2020, Clay earns a net income of $62,700 and declares and pays a $5,000 cash dividend. In 2020, Adams reports net income from its own operations (exclusive of any income from Clay) of $193,000 and declares no dividends. At the end of 2021, selected account balances for the two companies are as follows:

  

  Adams Clay
Revenues $ (452,000 ) $ (272,000 )
Expenses   327,700     204,000  
Investment income   Not given     0  
Retained earnings, 1/1/21   Not given     (553,700 )
Dividends declared   0     8,000  
Common stock   (350,000 )   (150,000 )
Current assets   651,000     342,800  
Investment in Clay   Not given     0  
Equipment   701,900     574,900  
Liabilities   (208,900 )   (130,700 )
 

  

  1. What are the December 31, 2021, Investment Income and Investment in Clay account balances assuming Adams uses the:

  • Equity method.
  • Initial value method.
  1. What is the amount of Consolidated Expenses in its December 31, 2021, consolidated income statement under each of the following methods?

  2. What is the amount of Consolidated Equipment in its December 31, 2021, consolidated balance sheet under each of the following methods?

  3. What is Adams’s January 1, 2021, Retained Earnings account balance assuming Adams accounts for its investment in Clay using the:

  • Equity value method.
  • Initial value method.
  1. What worksheet adjustment to Adams’s January 1, 2021, Retained Earnings account balance is required if Adams accounts for its investment in Clay using the initial value method?

  2. Prepare the worksheet entry to eliminate Clay’s stockholders’ equity.

  3. What is consolidated net income for 2021? 

Answered 107 days After Jun 01, 2022

Solution

Sandeep answered on Sep 16 2022
63 Votes
AAns 1
    Ans 1    Date     Accounts     Debit    Credit
        1/1/20    Investment in Clay    41,920.00
            Retained Earning on 01/01/20 (Adams)        41,920.00
            (Being Reecord of adjustment in RE for recording RE
            as per Equity Method)
        Calcuklation of Retained Earnings as on 01/01/2020
            Equity Method
            Retaineds Earning of Adam's as on 01/01/2020    1,210,200.00
        Adds     Net Income of Adams    193,000.00
        Adds     Net Income of...
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